3 Reasons to Be Bearish Stocks

January 16, 2024

Coming into 2024, we already had a nice list of things that needed to happen to approach the market from a much more defensive perspective.

Let's remember that throughout the 4th quarter we were going out of our way to be more aggressive than even we were accustomed to.

It was a different environment.

And while we did not know what 2024 would bring, we still don't, at least we came in with a good list of developments that would likely be occurring before a more severe correction was underway.

Remember, the new highs list peaked on December 14th. So that means we're over a month into a market correction that you can only see taking place underneath the surface if you bother to look.

Here's how each of the sectors have performed during this correction:

While there is some defensive rotation, I wouldn't exactly put Financials and Communications in that defensive category.

And even Healthcare's outperformance is debatable in terms of defense.

I would point specifically to Consumer Staples as THE defensive sector where money rotates into when stocks are under pressure.

So far we haven't seen much of it at all.

But if Staples relative to S&Ps are above those late 2021 lows, that's likely coming in an environment where stocks are having a harder time than what we saw throughout 2023.

Notice how this XLP/SPY ratio above went straight down all of last year. That's because it was a raging bull market.

If this ratio is going up, then what does that say about the state of the environment?

You can make a similar argument about the defensive nature of the US Dollar. We've seen such a strong negative correlation between most stocks and the US Dollar Index.

We said coming into the year that if the Dollar Index was above 102, that wouldn't be the greatest environment for stock bulls.

I would take that one step further and argue that if the Dollar Index is above 102.50 then sellers of stocks are likely the ones being rewarded the most.

And finally, here are two major indexes that we pointed to coming into 2024 that would be a good indicator of risk appetite vs risk aversion.

Both of these indexes were near critical levels: Nasdaq100 near 400 and Russell2000 near 200.

If either of these are below those key resistance levels, that poses a problem.

Maybe only a temporary problem, but a problem with the uptrend nonetheless:

If these indexes are above those former highs, that would be constructive for the overall market.

If the Dollar is rolling over and holding below 102, that would be a favorable position for equities.

And if Consumer Staples are underperforming, that would be consistent with a healthy market environment, and what we've gotten accustomed to seeing over the past year, during this historic bull market.

Otherwise, stocks are likely off to a sloppy start for Q1.

We will see.

It all comes down to time horizon.

How long are you looking to hold your positions?

What is your risk tolerance?

How much money are you willing to lose if you are wrong on a particular idea?

And what are you overall objectives?

What are you even trying to accomplish here?

These are the questions every investor needs to ask themselves before even entering into a position.

We'll be discussing all of the above and what we're doing about it on Thursday night's LIVE Conference Call.

Premium Members can register here if you haven't already.

We'll get going LIVE @ 6PM ET Thursday Jan 18th.

This is where we dive into individual groups of stocks and identify the most favorable risk vs reward opportunities for the coming quarter.

You definitely don't want to miss this one, especially as market trends are currently evolving.

3 Reasons to Be Bearish Stocks

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